Brief of the case:
The Hon’ble Delhi High Court in the case of Alcatel Lucent Canada held that the income earned from the supply of hardware equipment where the embedded software facilitates the functioning of the equipment cannot be taxed as royalty payments for use of software because there could not be any independent use of such software.
Facts of the case:
- The assessee is a France based company engaged in manufacturing, trading and supply of equipments and services for GSM Cellular Radio Telephones Systems.
- The assessee had supplied software embedded in hardware equipments to its customers in India. Such software embodied process which was required to control and manage specific set of activities involved in the business of its customers.
- The AO reopened the assessment to tax the consideration received by assessee as royalty under Sec 9(1) (vi) of the Act.
- The CIT(A) as well as tribunal held that supply of embedded software to the Indian customers not amount to royalty as per sec 9(1)(vii) and thus, not taxable in India.
Contention of the Revenue:
- Software licensed by the assessee contain the process which is required to control and manage the specific set of activities involved in the business use of its customers. Software also made available the process to its customers, who used it to carry out their business activities.
- Therefore, the consideration for supply of software amounted to royalty under Section 9(1) (vi) of the Act.
Contention of the Assessee:
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